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A Perfect Match Finding the franchise that fits you to a tee

By Julie B. Davis

Opinions expressed by Entrepreneur contributors are their own.

When Cindy Miller started searching for the perfect franchise in1993, she had just one stipulation: "Anything but fastfood." After two years spent considering a variety ofbusinesses, she and her husband, Jim, opened a Blimpie Subs &Salads shop in November 1995.

Even though she initially thought fast food wasn't right forher, Miller, who now owns two shops in Terre Haute, Indiana, foundthat it was the best business for her. "It has been goingreally well," says Miller. "I'm enjoying the work andwe've been very successful. Our first store has done well sincethe day it opened."

During her long search for the perfect franchise, Miller learneda number of important lessons, including the necessity of keepingan open mind.

"We looked at several businesses, but found that a Blimpiefranchise fit our needs the best," she says of the 33-year-oldcompany, which is the second largest submarine-sandwich franchisorin the world. "The market wasn't oversaturated, and thecompany is established, but positioned for growth."

Miller also discovered that no two franchises are the same, justas no two potential owners are alike. The perfect franchise for oneperson might be a poor choice for another.

"Choosing the perfect franchise is no simple task,"says Mark Siebert, president of Francorp, a franchise-developmentand consulting firm in Chicago. "The decision should be madecarefully, because it's one you have to live with."

While many potential franchisees start out looking for theperfect franchise by examining various businesses, they'relooking in the wrong direction, says Siebert. "You don'tmake a decision by examining businesses first," he says."You start out by examining yourself."

The Life of a Franchisee

Your first step is to make certain being a franchisee is rightfor you. Although as a franchisee you are essentially your ownboss, you may not be as unfettered as an independententrepreneur.

"The advantage of being a franchisee is that someone elsehas taken a lot of the risks in the business and has perfected andrefined a system," Siebert points out. "To be successful,you must follow a prescribed set of rules."

"An independent entrepreneur makes all the decisions,whereas a franchisee listens and follows a game plan," addsJohn Campbell, CEO of Franchise Masters, a franchise-developmentand consulting company in Minneapolis.

One thing remains the same for entrepreneurs and franchisees,though: Both are responsible for their own success. "Don'tthink that because you become a franchisee you'll automaticallybecome successful," says Campbell. "The franchisor isonly providing the tools; the rest is up to you."

What Do You Want from a Business?

If you decide you are able to follow a game plan, your next stepis to do some soul-searching to discover the type of business thatbest suits you. This inner examination includes considering yourgoals and objectives, personality, likes and dislikes, strengthsand weaknesses and personal circumstances, including finances.

Answering the following questions will help you get anindication of what type of franchise would be right for you:

  • Are you comfortable in a sales role? If sellingisn't your thing, don't buy a business that will involveheavy sales activity.

  • Do you work well with the public? A restaurant isn'ta good choice if you don't like greeting customers, unless youhave a partner and can stay behind the scenes in the kitchen.

  • Do you work well with employees? This is an importantconsideration if you will need to staff your business.

  • Do you want to sell a product or a service? Do you liketo perform services, such as housecleaning or car repair, or do youprefer to offer a tangible product, such as bagels?

  • Do you mind getting dirty? If getting grubby turns youoff, don't buy a business like a quick-lube franchise, ajanitorial service or a landscaping business.

  • Why are you buying a franchise in the first place? Doyou want to amass retirement savings and create a business to passon to your children? Or do you simply want a steady job? Toaccumulate a large amount of money, you will probably have toinvest in a newer franchise that has the potential for highearnings, as opposed to a more predictable, established franchisethat pays you a moderate salary.

  • What working hours do you prefer? If you are averse toworking long hours seven days a week until the business isestablished, stay away from retail and restaurant ventures.Likewise, if you want your weekends free, don't go into realestate, which requires working Saturdays and Sundays. If you preferworking days, stay away from a janitorial-service business. Mostcleaning occurs between the hours of 6 p.m. and midnight.

  • What are your personal interests and hobbies? We tend todo best with what we love. A hobby franchise involves a hobby orpastime which you enjoy, such as a baseball-card shop, a kitestore, a Jazzercise studio or a craft- and-gift boutique. Do youhave a hobby that you can pair up with a franchise? If so, look atpossible related franchises, but do so with a level head.

"Although there are many hobby businesses, such as aerobicfranchises, they tend to be financially limited," Siebertsays. "If you just want to get paid for what you like to do,then such a business may be fine, but if you want to make a greatdeal of money, you're better off getting a different franchisethat meets your financial needs."

  • Can you start a business that will enable you to useprevious contacts? If you've been in the corporate worldfor years and have built an impressive roster of contacts in thehuman-resources field, it would be a shame to not put that contactlist to good use.

  • Do you have children and need a kid-friendly atmosphere?If you would like your children to learn from the business, abookstore, a restaurant or an accounting business might be anappropriate choice.

New or Established Franchise?

An important consideration is whether the franchise is new orwell-established. Each has its benefits and its drawbacks.

Established franchises have a number of advantages in theirfavor, including name recognition, a tested business-operation planand many other successful franchises for the new franchisee to lookto for encouragement, direction and inspiration.

Some of the negatives of such a business include a possiblyoversaturated market and a lack of prime locations, which make itmore difficult for the new franchisee to be profitable. While anestablished franchise may have diminished profitability because ofincreased competition, the potential for growth and the capturingof market share for a new franchise is high.

If you sign on with a franchise in its early years, you'lltend to get the prime locations, and if the business is successful,your return is likely to be higher than if you'd chosen anestablished franchise. There is the risk that a new franchisewon't survive, however, leaving you without financial support.There is also a risk that the concept of a new franchise won'tsurvive, and your business will fail. Because the franchise is new,there are fewer proven guidelines for you to follow and, as aresult, you can be less sure of what works. An establishedfranchise comes with a "road map" of instructions andguidelines that have been proven to work.

Whether you choose a new franchise or an established one willdepend on your personality. "Individuals who choose newerfranchises tend to have a higher risk tolerance," saysSiebert. "Because the concept is untried, they are making amuch more risky investment. They may also need a high return ontheir investment, which only a new franchise can generallyprovide."

When Doug Bauguss chose to buy an Impressions On HoldInternational franchise, he did so partly because it is a newbusiness that has a high potential for growth.

"You hear people talking about ground-floor opportunities,and that's what this is," says Bauguss, who started hiscustomized, on-hold phone-advertising business when he bought theterritorial rights to the entire Phoenix area in February 1995."The market is unlimited and the potential for growth isphenomenal."

Steve Dunkle also got in on the ground floor of The Connoisseur,a gift-service franchise based in Redondo Beach, California, thatoperates through retail stores. The Connoisseur features premiumwines and champagnes with personalized messages printed on eachlabel. This February, he and his wife, Diane, opened their TheConnoisseur franchise (the franchisor's sixth store) inPortsmouth, New Hampshire, which happens to be the first to openeast of Colorado.

"I chose a new franchise because, at heart, I'm anentrepreneur, and the higher the risk, the higher the potential forreward," Dunkle says. "I wanted a franchise that could begrown--one with no limitations--so that I could create a retirementfund. With the business still in its infancy, it can be lucrativefor myself and others involved in the start-up."

Elements of a Promising Franchise

Regardless of whether a franchise is new or established,it's important portant that it has made its mark with a nichein its industry and that it is still open for growth.

After deciding to buy a fast-food franchise, the Millersnarrowed their choice down to Blimpie because the companyhadn't already oversaturated the market in their town.

"There was a burger joint on every corner, but thesub-and-salad market was still really open," says Miller."From our research, we could tell that Blimpie was set forgrowth. So far our predictions have come true. We've justopened a second store."

Another important consideration is the relationship between thefranchisor and its franchisees. "A golden rule is that thefranchisor should treat the franchisee as a working partner, andnever like someone they look down on," says Campbell."The franchisor has to understand the equation of franchising,and that the franchisee is the most important part of thatequation."

A big part of Bauguss' evaluation of Impressions On Holdinvolved taking a close look at the relationship between thefranchisees and the franchisor.

"I really liked the fact that they are dependent on theirfranchisees," Bauguss says. "They couldn't existwithout us, and we couldn't exist without them. Therelationship is win-win."

To find out what the relationship is like between franchiseesand franchisors in a particular system, talk to existing franchiseowners and visit the corporate headquarters to meet with companyofficials.

"Don't talk to salespeople, who you'll probablynever see again," says Siebert. "Meet the people you willbe working with. Make sure that you have confidence in theirability and product, and that you can get along with them, becausethis will be a long-term relationship."

When he was deciding whether or not to purchase a Connoisseurfranchise, Dunkle and his wife flew to Southern California to meetwith the company's president, Sandy French.

"After meeting with Sandy, we knew the business was rightfor us," says Dunkle. "Sandy allows creativity withincertain guidelines, which really appealed to us. I could tell thatthe opportunity was very much a win-win, team-orientedone."

When calling existing franchisees, don't ask them easyquestions such as, Do you like the franchise? "Askquantifiable questions, such as: `How much support do you get fromthe franchisor?'" suggests Siebert. "How frequentlydoes a company representative visit? What services do they provideto you? How much money are you making? How long did it take you tobreak even?"

Miller called 30 franchisees before deciding to buy a Blimpiesandwich shop. "I asked them a lot of questions, such as ifthey were happy with what they were doing, what their sales andexpense numbers were and what kind of support they got," shesays.

How to Investigate a UFOC

An important part of deciding whether or not a franchise isright for you is investigating the Uniform Franchise OfferingCircular (UFOC). Required by the Federal Trade Commission, thisdocument discloses extensive information about the franchise,covering 23 subjects.

The UFOC should be reviewed carefully, because it providesinformation on some important points, such as your anticipatedearnings. Franchisors aren't allowed to make earnings claims,so you must scrutinize the UFOC to get a good understanding of whatkind of earnings you can expect.

Also look at the company's audited financial statements,because they can give you a big clue as to the average revenue of aunit.

"If a franchisor reports $1 million in annual royaltyrevenues and they charge a 10 percent royalty, then the totalnetwork volume is going to be $1 million divided by 10 percent, or$10 million," Siebert explains. "Divide that by thenumber of franchises in the system and that will give you theaverage reported revenue per franchisee."

Siebert cautions that the above formula is less reliable whenthe business is a new, fast-growing franchise, but it can give youa point of reference to consider.

Another thing to look for in the UFOC is current or pastlitigation against the franchisor. What is the nature of thelitigation? Although allegations don't necessarily mean thelawsuit is founded, litigation is a red flag. Also make sure thefranchisor hasn't been involved in a bankruptcy.

You can also find in the UFOC an indication of the financialstrength of the franchisor to withstand a downturn in the market,as well as the franchisor's profitability and significant networth.

The UFOC includes a list of all the franchisees currently in thesystem. Experts suggest contacting as many franchisees as youpossibly can and asking them about their earnings andprofitability.

Another critical item to examine is the franchisee-turnoverrate. The UFOC lists how many franchisees have left the system inthe last three years. If only one percent or two percent have bowedout, the franchise is probably a low-risk venture.

"If the amount of franchisees who have left issignificantly higher," says Siebert, "then you need tostart looking at the business from the standpoint of how much riskyou are really taking on."

Finally, before signing, have a lawyer experienced in franchiselaw review the UFOC and related contracts to make sure you aregetting a fair deal.

Whats Hot In Franchising?

Looking for a franchise opportunity that is popular now andlikely to remain in demand? Consider the following franchiseopportunities suggested by franchise consultants John Campbell andMark Siebert.

  • Amateur sports, including equipment and tournaments

  • Baby boomer services

  • Children's services

  • Computer-related businesses

  • Employee training

  • Internet-related businesses

  • Medical services

  • Natural products, including foods and vitamins

  • Niche food services, such as bagels, pretzels or rotisseriechicken

  • Pet stores

  • Senior services

Contact Sources

Blimpie Subs & Salads, 2501 Ohio Blvd., Terre Haute, IN47803, (812) 238-7827.

The Connoisseur, 712 Islington St., Plaza 800, Portsmouth, NH03801, (603) 431-3100.

Franchise Masters, 1000 Shelard Pkwy., #320, Minneapolis, MN55426, (800) 328-4158.

Francorp, 20200 Governors Dr., Olympia Fields, IL 60461, (800)372-6244.

Impressions On Hold International, 5717 N. Seventh St., #300,Phoenix, AZ 85014,

(602) 230-2822.

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